When a member borrows money for a vehicle, it is the credit union’s right to require them to show proof of comprehensive and collision insurance to protect its interest from damage or loss throughout the life of the loan. However, there is no guarantee that the member will keep it in force throughout the entire term. If the member’s insurance lapses, the credit union will traditionally force-place auto insurance on the member’s loan, adding the premium to the loan principal.
This force-placed (or lender-placed) process often creates member complaints and the need for credit union employees to play “detective” by tracking the insurance status of every loan on an ongoing basis. Credit unions are faced with a tough balance between dedicating administrative resources to verify member insurance status, protecting assets with force-placed insurance and endangering member relationships due to dissatisfaction. This issue has guided many credit unions to seek the alternative protection solution, Vendors Single Interest (VSI), also referred to as Lenders Single Interest (LSI).
Vendors Single Interest
Vendors Single Interest insurance provides broad protection against collateral loss for the entire loan portfolio, without the need to track insurance status. VSI simply protects the credit union’s interest against any loss that occurs if they repossess damaged collateral and the member’s insurance has lapsed. Learn more >
How does it work?
At the time of the loan, the credit union adds the Vendors Single Interest premium to the member’s loan contract. The premium is based on each credit union’s individual loss ratio experience. Our agency has seen premiums that range from about $15 to $130 per loan. Typically, most credit unions pass this cost along to the member.
What is the difference between CPI and VSI?
Vendors Single Interest is a change in mindset from a reactive measure to a proactive measure. Because the coverage is financed into every loan, it proactively protects the credit union and the member from uninsured damage or loss as opposed to the traditional reactive measure of tracking insurance status and force-placing coverage after the member’s insurance has lapsed.
What about member dissatisfaction?
Credit unions who have switched to VSI have seen a vast reduction in overall member complaints as it concerns force-placed insurance woes. Though the added cost is passed along to the member at the time of the loan, the premium has little affect on the overall payment and has been viewed as an acceptable requirement in the overall loan agreement.
How does switching affect our existing loan portfolio?
Switching from the traditional collateral protection insurance to Vendors Single Interest is surprisingly easy. When a credit union makes the change, our vendor partners will assume coverage for a credit union’s existing loan portfolio free of charge. This eliminates the need to track insurance on existing loans and the inconvenience of dealing with multiple providers.
For more information, contact CU Insurance Solutions Senior Account Executive Tim Dalton at email@example.com or complete the contact form below.